Risk management still needs major work, insurers told

An FSA review of risk management practice by insurers has revealed serious common shortcomings that it wants boards and senior management to address. The process could prove humbling since although most firms have set up oversight committees the regulator says that the board members who sit on them often lack the necessary expertise to ask probing questions about risk issues. It notes that, despite a fully documented risk management philosophy, in many firms the stated risk appetite is insufficiently understood to impact all critical decisions. In implementation, risk management is often characterised, the review says, by inconsistency or undue emphasis on a specific area. It notes that if the board is unable to conduct informed interrogation of risk matters the results may prove neither reliable nor useful to executive management or to the regulator. The FSA observes that some risk management functions appear to do no more than coordinate risk management operations and that many firms fail to generate the management information and analysis that would allow for detection of trends and ordering of risk mitigation work. Although there is satisfaction at the progress so far to develop quantification models for risk-based capital under the individual capital adequacy standards (ICAS) framework, more needs to be done, especially, the FSA says, in educating board and management about risk-based capital.